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					            PERFORMANCE SPECIFIED ROAD MAINTENANCE CONTRACTS:
                         THE ROAD TO THE FUTURE
                     THE LATIN AMERICAN PERSPECTIVE

                                 Dr. Gunter J. ZIETLOW
                                        Alberto BULL
                          International Road Federation (IRF)
          UN-Economic Commission for Latin America and the Caribbean (ECLAC)
           Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH
                  8516 Meadowlark Lane, Bethesda, MD 20817, USA
                       Tel: (301) 767 8934, Fax: (301) 767 0346)
                              E-mail: irfgtz@mindspring.com
                             Internet: http://www.zietlow.com

SUMMARY

Cutting the cost of road maintenance and improving road conditions are the main reasons
why several Latin American countries have started to look for new ways of contracting out
road maintenance. With technical assistance from the International Road Federation and
German Aid, Colombia, Brazil, Guatemala, Peru and Uruguay have initiated so called
Performance Specified Road Maintenance Contracts on a pilot basis. In addition, Argentina
and Chile have let several such contracts recently. In this scheme the Road Authority serves
as the owner, but out-sources both the management and production of the maintenance work
to a single contractor. Most of these contracts have been operating for more than a year and
cover routine maintenance and, in some cases, periodic maintenance and road rehabilitation
as well. Extension of the road network, road surfaces and conditions, and the time period vary
in each pilot project and will provide a wide basis for evaluation and improvements.

This article provides an overview of the different pilot projects, giving special attention to the
performance specifications and control procedures, how these contracts have been
implemented, and what lessons can be learned so far.

KEY WORDS: CONTRACT / CENTRAL AMERICA / COST / MAINTENANCE / QUALITY /
QUALITY ASSURANCE / SOUTH AMERICA / SPECIFICATION
1. INTRODUCTION

Cutting the cost of road maintenance and improving road conditions are the main reasons
why several Latin American countries have started to look for new ways of contracting out
road maintenance. With technical assistance from the International Road Federation and
German Aid, Brazil, Colombia, Guatemala, Peru and Uruguay have initiated so-called
Performance Specified Road Maintenance Contracts on a pilot basis. In addition, Chile and
Argentina have let several such contracts recently. Most of these contracts have been
operating for more than a year and cover routine maintenance and, in some cases, periodic
maintenance and road rehabilitation as well. Extension of the road network, road surfaces
and conditions, and the time period vary in each pilot project and will provide a wide basis for
evaluation and improvements (see Table 1).

      Table 1. Examples of Performance Specified Road Maintenance Contracts as of
      Dec. 1998
 Country          Number of    Length    Duration of     Type of          Cost per km and
                  Contracts     in km    Contract in   Maintenance          year in US$
                                           years
 Argentina          61(a)      11.813        5                r              A: 11.000(c)
 Chile               2(a)       747          5                r                C: 3 850
                                                                               A: 3 200
                                                                               B: 2 700
 Colombia             3          545           2              r, s             A: 6 200
 Guatemala,           70        2 995        1 (b)       r (drainage             1 950
 small scale                                             system and     (drainage system and
 enterprises                                             right of way     right of way only)
                                                             only)
 Uruguay             4(a)       1 007         4               r, p          C, A, B and G
                                                                                6 980
 Uruguay,             8         1 564        2 (b)      r (excluding         A, B and G:
 small scale                                             signs and              3 800
 enterprises                                             markings)
 Uruguay             1(a)     1.05x106       3 (b)           r, p             A: 1.8/m2
 (Montevideo)                    m2                                           C: 2.8/m2
                                  !                                           G: 2.0/m2
 Brazil (Santa       1(a)       375              5             r              A and G
 Catarina)                                                                     3 000
  (a) Contracts include some initial road rehabilitation works
  (b) Can be extended for one period of equal duration
  (c) Lump sum including the initial rehabilitation costs
  r: routine maintenance; p: periodic maintenance; s: other services provided to users (telephone,
  ambulance, towing) and administration of the roads
  C: cement concrete; A: asphalt concrete; B: Bituminous treated; G: gravel




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The experiences of the road rehabilitation and maintenance concessions let in Argentina in
1990 were used in the design of these projects. In addition, several developed countries such
as Australia and, most recently, the United States of America and New Zealand1 have started
to contract out road maintenance based on performance specifications.

2. PERFORMANCE SPECIFIED ROAD MAINTENANCE CONTRACTS

What is a Performance Specified Road Maintenance Contract? The traditional way of
contracting road maintenance is based on a schedule of unit prices and estimates of
quantities. The works to be performed are specified in the contract and payments are based
on executed measured works. By contrast, a Performance Specified Road Maintenance
Contract defines the minimum conditions of road, bridge, and traffic assets that have to be
met by the contractor. Payments are based on how well the contractor manages to comply
with the performance standards defined in the contract, and not on the amount of works
executed. The nature of the contract allocates responsibility for work selection, design and
delivery solely to the contractor. Hence, the choice and application of technology and the
pursuit of innovation in materials, processes and management is all up to the contractor. This
allocates higher risk to the contractor compared to the traditional contract arrangement, but
on the other hand may increase the contractor's margin where improved efficiency and
effectiveness of technology, process, design or management reduces the cost of achieving
the specified standards.

To define these standards is rather a challenging task. The aim is to minimize total systems
cost, including the long-term cost of preserving the roads as well as the cost to the road user.
To avoid ambiguity, performance standards have to be clearly defined and objectively
measurable.

Typical performance standards are:

•     The International Roughness Index (IRI) to measure the roughness of the road surface,
      which affects vehicle operating cost;
•     The absence of potholes and the control of cracks and rutting;
•     The minimum amount of friction between tires and the road surface for safety reasons;
•     The maximum amount of siltation or other obstruction of the drainage system;
•     The retroreflexivity of road signs and markings, and
•     The control of vegetation close to the roadway to a specific height.

Examples of performance standards applied in different contracts are compiled in Table 2.




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                                                                                              3
       Table 2.: Examples of performance standards applied in different contracts
      Asset Class               Component                        Performance Standard
    Pavement            Potholes                       No potholes
                        Roughness (asphalt)            IRI < 2.0 (Argentina), IRI < 2.8 (Uruguay)
                        Roughness (bituminous)         IRI < 2.9 (Argentina), IRI < 3.4 (Uruguay)
                        treatment)
                        Rutting                        < 12mm (Argentina), < 10mm (Uruguay,
                        Cracks                         Chile)
                                                       Sealed
    Gravel surfaces Potholes                           No potholes
                    Roughness                          IRI < 6 (Uruguay), IRI < 11 (Chile)
                    Thickness of gravel layer          10 cm (Chile, Uruguay)
    Shoulders       Potholes                           No potholes
                    Cracks                             Sealed
                    Joints with pavement               Vertical alignment < 1cm (Chile, Uruguay),
                                                       sealed (Peru)
    Drainage            Obstructions                   No obstructions. Should allow for
    system              Structures                     unhindered flow of water (Chile, Uruguay)
                                                       Without damages and deformations (Chile,
                                                       Peru)
    Road signs and Road signs                          Complete and clean (Argentina, Chile,
    markings                                           Peru)
                   Road markings                       Complete and visible (Argentina, Chile,
                   Retroreflexivity of road            Peru)
                   markings                            160 mcd/lx/sqm. (Argentina)
                                                       70 mcd/lx/sqm. (Uruguay)
    Right of way        Vegetation                     < 15cm height (Argentina, Uruguay)
                        Foreign elements               No foreign elements allowed

As traffic conditions vary from road section to road section, different sets of parameters will
create minimal system cost, taking into account road maintenance and vehicle operating
costs. The application of the Highway Design Model (HDM) can be helpful to define some of
these parameters, such as the IRI.

If sections of the road in question are in poor condition, the contract should include the
rehabilitation of these sections as well. In this case rehabilitation works may be carried out in the
"traditional" form, with official design and paid on the basis of unit prices as in the cases of Chile,
Colombia and Uruguay. Or alternatively, final design of rehabilitation works can be left to the
contractor and payment for these works can be included in the lump sum contract price.
Argentina has taken this approach whereby 55% of the lump sum is being paid in three
instalments during the first year (rehabilitation period) and 45% in 48 equal monthly instalments
in the years two to five of the five year contract period. To include initial rehabilitation works in the
performance specified road maintenance contracts as well provides two main advantages: first,
it gives the contractor incentives to perform well on the rehabilitation works to avoid premature
repairs which would increase maintenance cost, and second, it insures that maintenance will
start immediately after the rehabilitation works have been finished.
                                                                                                       4
          Performance specified road maintenance contract in Montevideo, Uruguay

In addition, performance standards may include other obligations, i.e. supplying direct
services to the road user such as roadside telephone, ambulance and towing, as for example
in the case of Colombia.

All of the performance specified road maintenance contracts let so far have a contract period of
between 1 and 5 years. This is to give the road administrations as well as the contractors the
opportunity to gain experience with this new kind of contract. Of course, long-term contracts with
contract periods of more than 10 years are better suited to capitalize on the potentials of
performance maintenance contracts since the optimization of periodic versus routine
maintenance interventions needs at least a ten-year period in the case of asphalt concrete
roads. Long-term contracts also provide a better incentive to use new technologies and even to
undertake some research on how to adapt these technologies to the very specific conditions at
hand.




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3. CONTROL PROCEDURES AND PENALTIES

How can we make sure that the contractor complies with the performance standards specified
in the contract? Vital to the success of this new way of contracting road maintenance is to
have appropriate control procedures as well as penalties for non-compliance well defined in
the contract documents. Procedures defined in various contracts, as well as experiences,
vary.

In the case of Argentina inspectors are inspecting the road and making random checks to
verify compliance at least twice per month. Over time, inspectors become more experienced
and familiar with trouble spots along the roads. Experience underlines the importance of
having a well-documented inventory of the road as well as daily records of activities
undertaken by the contractor. This helps to understand the specific behaviour of the roads
and contributes to better preventive maintenance. Inspectors and personnel of the contractors
went through a valuable phase of learning and adaptation to arrive at an effective control
system. In Argentina a very important role is given to the active participation and control of the
road user. Each toll station is keeping a complaints and suggestions book and users are
encouraged to report incidents to the Road Administration. Extensive use of this mechanism
has helped to improve road conditions and has revealed an increasing satisfaction of the road
users with the new scheme.

In Chile there are four kinds of inspections: (i) monthly inspections cover 10% of the roads
under contract. Selection of stretches of 1 km each is based on a random sample well defined
in the contract; (ii) weekly inspections looking at 5% of the roads randomly selected; (iii) non-
programmed inspections to respond to complaints by road users; and (iv) follow-up
inspections to verify that appropriate action has been undertaken by the contractor to rectify
non compliance. Payments to the contractor are based on the results of the monthly
inspections. A percentage of compliance is being calculated based on a formula using the
results of each individual performance standard as input data. Full payment will only be made
on 100% compliance. During the first two years of the contract, compliance has been around
95%. Penalties are being applied if the contractor does not rectify established deficiencies
within a certain time limit.

In other countries, such as Colombia and Guatemala, slightly less sophisticated ways of
assessing the compliance with performance standards are being followed.

In order to enable the contractor to manage the contract properly and the road administration
to monitor it, it is vital that the contractor has a proper management and quality control system
in place. The Argentinean, Chilean and Colombian contracts are especially specific in this
respect. Part of the obligations of the contractor is to keep records of his inspections, quality
control procedures and works undertaken. This is especially important to monitor and adjust
the pilot projects. For example, due to the excellent contract monitoring system in place in
Uruguay, the recently let contracts show significant improvements over the earlier contracts.



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4. IMPLEMENTATION OF PILOT PROJECTS

How can this new contracting scheme best be implemented? The approach to be taken very
much depends on the specific circumstances of each country. The experiences of the road
administrations with contracting out road maintenance and the competence of local
contractors play major roles. The longer the experience of contracting out road maintenance,
the more comprehensive the scheme to implement pilot projects based on performance
standards can be. If all maintenance is still being executed by force account, pilot projects
should be limited to small-scale schemes.

A first step could be to award one or two-year contracts, with performance standards related to
routine maintenance only. A suitable second step could consist of four to five year contracts that
might include more demanding standards such as the IRI. Embarking on long-term contracts
will require some experience with short-term contracts and very much depends on the ability of
the road administration, as well as the contractors, to assume the special responsibilities and
risk associated with such contracts.

In order to gain experience Brazil, Chile, Colombia, Peru and Guatemala have started with 1
to 3 pilot projects with a road network of approximately 300 kilometres each, concentrating
mainly on roads with asphalt concrete and bituminous treated surfaces. In some cases gravel
roads were included as well. Typical contract duration is 3 to 5 years.

Generally, contracts have been awarded based on public bidding. Prior to the preparation of
bids extensive discussions took place between the road administration and the potential
contractors. As this is a new contracting scheme, all parties involved went through a learning
and adaptation process to come up with the final contract documents. In addition, extensive
consultation with other road administrations already experienced in setting up pilot projects in
their countries has helped to speed up the process of preparing the necessary
documentation.

In Guatemala and Uruguay the road administrations have successfully encouraged some of
their staff to form small road maintenance enterprises and to maintain roads under the new
contracting scheme. This has helped the road administrations to reduce excessive staff as
well as to gain experience with contracting out road maintenance by performance standards.




                                                                                                7
            Example of a small-scale road maintenance enterprise in Guatemala
            working under the performance specified road maintenance scheme.

5. LESSONS LEARNED

Fortunately, most of the pilot schemes have been highly successful so far, with the exception
of a few smaller contracts in Guatemala which have not been prepared properly. In all other
cases, road conditions in the pilot areas have improved notably and maintenance costs have
either stayed the same or have been reduced. Road administrations and contractors express
satisfaction with the preliminary results. Nevertheless, it is far too early to come to final
conclusions.




                                                                                           8
Preliminary conclusions can be drawn as follow:

   •   Pilot schemes for contracting out road maintenance based on performance
       specifications should be carefully planned and implemented. The complexity of
       the contracts, especially with regard to performance specifications, road surfaces and
       contract duration should be based on past experience in contracting out road
       maintenance, the ability of the road administration to prepare and monitor such
       contracts, and the qualifications of local contractors to manage these new road
       maintenance contracts. Wherever there is little experience with contracting out road
       maintenance, a gradual approach is recommended, starting with short-term contracts
       and simple performance standards with regard to the control of potholes and cracks
       and the cleaning of the drainage system. Whenever roads are not in maintainable
       conditions, prior rehabilitation is necessary, either based on unit prices or included in
       the fixed monthly payments the contractor receives over the contract period.
   •   As with all new concepts, the road administrations as well as the contractors
       have to co-operate very closely to make the scheme work, and some
       adjustments may be required during the course of the pilot project. Preliminary
       reluctance and concerns expressed by some of the contractors to engage in the new
       contract scheme have encouraged road administrations to closely co-operate with the
       contractors in the preparation of the contract documents and have helped both sides to
       better understand the opportunities and risks involved. They have also contributed to
       increasing the number of bids received.
   •   Substantial improvement of road conditions and/or reduction of road
       maintenance costs cannot be expected immediately. Cost may even prove higher
       in the beginning to reflect higher risks taken by the contractor due to the unfamiliar
       contract scheme. Proper risk allocation between the road administration and the
       contractor, as well as full information on the possible risks involved, can reduce this
       problem, as has been successfully proven in Uruguay.
   •   Wherever experienced contractors are managing the pilot projects, the new
       contracting scheme has resulted in encouraging the introduction of new
       technologies in order to reduce maintenance cost. Since all of the contracts have
       been let fairly recently and are of short duration, few technological improvements have
       been observed so far. But the increasing experience with the new contracting scheme,
       the exchange of knowledge between contractors, and the gradual introduction of long-
       term contracts will most likely accelerate the application of new technologies.
   •   With less experienced contractors, especially newly formed small-scale road
       maintenance enterprises, training in management, financial and technical issues
       is essential for the success of the pilot projects. Uruguay, for example, was most
       successful in this respect, implementing an ample training program for small
       enterprises, which produced excellent results.




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   •   Proper control and application of sanctions for non-compliance with
       performance standards is equally vital for the new scheme to be successful. In
       principle, these contracts are far easier to control than traditional contracts.
       Supervision of the pilot projects might be contracted out, applying stiff penalties if
       controls are not enforced properly. In addition, as long as performance standards are
       made public, road users will become the best "inspectors" and will complain if
       standards are not being met. Unfortunately, some of the pilot projects have not been
       supervised properly in the initial phase of these projects. The main problems have
       been the regularity to control the performance standards as well as certain reluctance
       in applying the proper penalties foreseen in the contracts, when performance
       standards were not met. This very often reinforced the rather poor performance of the
       contractor. In contrast, wherever proper controls have been enforced and the
       appropriate penalties have been applied in the case of non-compliance with the
       performance standards, contractor performance has improved significantly.

The principal advantage of contracting out road maintenance based on performance
standards is its potential for reducing road maintenance costs and improving road conditions,
especially in developing countries. Another important advantage of this new contracting
scheme is that the users know exactly the road conditions they can expect and demand.
Unfortunately, improper implementation of this scheme could backfire and produce adverse
effects. It is to be expected that contracting out road maintenance based on performance
standards will quickly spread all over the world and eventually will replace the traditional way
of contracting out road maintenance based on unit prices.



                                           NAVIGATION




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